All About Investing in US Stock Market – A Beginner’s Guide| North Loop Official Blog
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18 Aug 2020

All About Investing in US Stock Market – A Beginner’s Guide

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There are several investment opportunities available in the US markets, and with the massive stimulus package being announced in the US recently, the interest of investors in this market has increased tremendously.

Also, the momentum shown by some of the US stocks cannot go unnoticed, with specific companies like the FAANG - Facebook, Apple, Amazon, Netflix, Alphabet (Google) continuing to show promising growth and high quarterly earnings even amid a pandemic.

The outperformance by these tech stocks has also pushed the NASDAQ 100 to multiple record highs. Moreover, with society’s increasing reliance on technology, investors have confidence that these US stocks will continue to show growth and strong track records.

So why should you invest in US stock markets?

Along with the opportunities that come with investing in a market that holds a dominant position globally, investing in US stocks allows you to be a part of a geographical diversification process.

Diversifying your portfolio across different geographic regions can help you compensate for the volatility in your economic region. It can also reduce risk in the long run as compared to a portfolio that is less diversified because it reduces over-reliance on the continued success of your own economy. There is a saying – do not put all your eggs in one basket, and geographical diversification is pretty much a financial equivalent of that.

The financial market in the US may be better than that in your economy, and by diversifying and investing in US companies, you can successfully avoid excessive concentration in only one market. Moreover, investing in the US market has become easier than ever with several options being available like investing in mutual funds, ETFs or even direct equities.

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Understanding the Active and Passive Approach to Investing -

The best investment options in the US are many but one of the most common methods to do so is through actively or passively managed mutual funds. Actively-managed funds include those that invest in the US-focused global funds or the ones that can be directly managed by the fund house.

Some asset management companies also offer partial exposure to the US equities. While an actively managed fund is one in which a fund manager makes decisions about how to invest the fund’s money, passive funds commonly known as Index funds primarily track a specific market segment or a market index like NASDAQ 100 or S&P500.

In the latter, the fund manager does not decide which security to invest in, and the fund simply replicates the market index by investing in the same stocks and the same proportion. In the case of an actively-managed fund, the fund manager does adequate research to pick out the stocks to invest in which includes stocks outside the limit of the index.

Why are ETFs and Index Fund more popular among investors –

The primary advantage of index funds over actively managed funds is the lower management expense ratio in the case of the former. An index fund’s expense ratio is considerably lower because to replicate the performance of a benchmark index, not much research is required, and fund managers do not need the services of analysts for the stock-selection process.

That is one of the main reasons why index funds and ETFs are more popular among investors globally who are interested in mutual fund investment in the US. They come with a lower cost as compared to their actively-managed counterparts and are a good option if you want to invest in index-based products in the US markets.

Tax treatment of International funds –

International funds get treated like debt mutual funds for taxation purposes which means that if you sell them before three years, the returns are added to your income and taxed as per the income tax slab applicable to you.

On the other hand, Indian mutual funds investing in US like PPFAS Long Term Equity Fund, Axis Growth Opportunities Fund and Kotak Pioneer that invest a percentage of their corpus in US stocks are considered as equity schemes and get taxed accordingly.

Buying Stocks Directly –

If you want to invest in your favourite companies directly by buying its stock, you can do that as well by using the best trading platforms in the US.

With the presence of digital platforms like North Loop, investing in US stocks and companies has become effortless and extremely convenient. You can open an account on the App within a few minutes, get the help of professional financial advisors, access to 24*7 customer services and with a few clicks, you can be ready to buy stocks of US companies you are interested in. North Loop is particularly user-oriented and makes the entire process a seamless one.

Future of the US market –

The US stock market’s 10-year potential is better now than it was at the end of last year. Economists expect 2% annual gross domestic product (GDP) growth over the next 10 years and a higher than expected economic growth could lead to higher earnings growth and stock returns.

While most leading US indexes such as NASDAQ, S&P 500 and Dow 30 are showing promising returns, if you are inclined towards foreign investment in the US, you should carry adequate research to educate yourself about the constituents of these indices.

Currently, the NASDAQ is tech-dominated with companies like Apple, Google, Facebook, Netflix and Amazon comprising the majority of its share and showing massive growth and returns.

You can create a sound financial plan that serves as a road map to help you reach your long-term financial goals and align your investment portfolio with your risk appetite and return expectations.

Another point to note is the role of exchange rates on the returns that your investment portfolio generates from the US stock market. Investing in securities that dominate in an appreciating currency like the US dollar can boost your total returns. Moreover, with the US equities being in a bull market, you can witness some of the highest global returns in dollar terms.

What you should do right now –

It is a good time for you to review your existing financial plan and consider re-evaluating your long-term financial goals to ensure they are in line with your return expectations. With the US indexes trading at exceptionally high levels, if you are a long-term investor, exposure to the US market right now would be a sound financial decision.

To conclude, if you are comfortable with the risk of investing in international equities, it is the right time to geographically diversify your portfolio.

The above information is for general purposes. Do your own research before investing.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.